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Saddle Path Stability, Fluctuations, and Indeterminacy in Economic Growth

Author

Listed:
  • Greiner Alfred

    (University of Augsburg Department of Economics)

  • Semmler Willi

    (New School for Social Research Department of Economics)

Abstract

We present a macroeconomic growth model in which investment in physical capital exhibits positive externalities which raise the stock of knowledge. Treating physical capital and knowledge as two separate variables, we show that the model can generate endogenous growth. It is demonstrated that there exist at most two balanced growth paths (BGPs) with endogenous growth. If the BGP is unique it is always saddle-point stable. If there are two BGPs, the first is always stable in the saddle point sense, whereas the second cannot be a saddle point. Instead, the second is either totally stable, giving rise to local indeterminacy, or completely unstable. Further, we can demonstrate that a Hopf bifurcation may occur at the second BGP, leading to persistent fluctuations. Besides local indeterminacy, the model may also give rise to global indeterminacy.

Suggested Citation

  • Greiner Alfred & Semmler Willi, 1996. "Saddle Path Stability, Fluctuations, and Indeterminacy in Economic Growth," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 1(2), pages 1-16, July.
    • Handle: RePEc:bpj:sndecm:v:1:y:1996:i:2:n:3
    DOI: 10.2202/1558-3708.1015
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    Cited by:

    1. Alfred Greiner & Horst Hanusch, 1998. "Growth and Welfare Effects of Fiscal Policy in an Endogenous Growth Model with Public Investment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 5(3), pages 249-261, July.
    2. Pedro de Mendonça, 2013. "Nonlinear Phenomena in a Growing Economy with Convex Adjustment Costs," EERI Research Paper Series EERI RP 2013/05, Economics and Econometrics Research Institute (EERI), Brussels.
    3. Tarek Coury & Yi Wen, 2007. "Global indeterminacy in locally determinate RBC models," Working Papers 2007-029, Federal Reserve Bank of St. Louis.
    4. Guo, Jang-Ting & Lansing, Kevin J., 2002. "Fiscal Policy, Increasing Returns, And Endogenous Fluctuations," Macroeconomic Dynamics, Cambridge University Press, vol. 6(5), pages 633-664, November.

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